March 2006

Net Neutrality, France and iTunes

by James Gattuso on March 21, 2006

Forget Verizon and AT&T. As American policymakers debate whether to impose “net neutrality” rules to Internet network providers, France–always a step ahead in regulation–has fingered another threat to neutrality: Apple’s iTunes service. In a vote scheduled for today, the French parliament will vote on whether to require Apple to open its iTunes service to competing tune providers.

It would be easy to scoff at this. After all, Apple’s service is one of the most popular innovations since the flush toilet, revolutionizing online music to the benefit of millions of (apparently happy) consumers. But the French are annoyed: “France is against monopolies,” said an adviser at the French Culture Ministry yesterday.

But this is more than an idosyncratic French regulation. Its a logical extension of net neutrality principles: “The consumer must be able to listen to the music they have bought on no matter what platform” the French advisor said. Take away the French accent, and the argument is indistinguishable from that used by U.S. net neutrality proponents.

Of course, in the U.S., policymakers wouldn’t think of applying net neutrality regulations to anyone but the Bells and the cable companies. Would they? Its a question that Internet companies now supporting these net neutrality regulations should think pretty hard about. Maybe they should phone Steve Jobs for his opinion.

The DMCA, IBM Clones, and Intra-platform competition

by Tim Lee on March 21, 2006

I’m pleased to announce that my new Cato Policy Analysis, “Circumventing Competition: The Perverse Consequences of the Digital Millennium Copyright Act,” is now available for download.

A lot of DMCA critics have focused on how DRM undermines fair use by narrowing the ways in which users can consume the content they have legally acquired. That’s certainly a valid argument, but I tried to focus on the implications of another type of fair use: the fair use right to use reverse engineering to build a competing product. Prior to the enactment of the DMCA, the courts had consistently turned back efforts by incumbents to use copyright law as a way to exclude competitors from their technology platforms. Most famously, IBM was not able to prevent the creation of IBM clones, because a company called Phoenix used “clean room” reverse engineering techniques to develop a compatible BIOS without directly copying any of IBM’s copyrighted software.

The DMCA throws that principle out the window, because it makes it a crime to “circumvent” a DRM scheme–that is, access the content without first getting the permission of the DRM creator. As a result, it’s effectively illegal to build third-party software that interoperates with software like iTunes or Real’s video streaming software.

What’s most troubling about this is that it locks out small startups and individual hobbyists from building software or hardware that works with a dominant media platform. Inter-platform competition is good and important, but intra-platform competition tends to be a much more important driver of technological progress. Again, the PC platform is the poster child: it has worked so well because new entrants (Phoenix, AMD) have been able to offer products that serve as drop-in replacements for existing PC components. They didn’t have to develop a whole new PC platform in order to sell their BIOS or CPU–and they didn’t need IBM or Intel’s permission to do so.

In contrast, if someone wants to enter the digital music market, they can’t make their products compatible with the dominant technologies without the permission of the incumbents. And, not surprisingly, Apple has chosen not to give anyone permission. As a result, there’s not possibility for some scrappy startup to do to Apple what Phoenix did to IBM.

As I document in the paper, the same problem exists with virtually all post-DMCA video technologies. The next generation of digital video platforms–including Blu-Ray and HD-DVD, Internet streaming formats, and the CableCard–are all wrapped in DRM controlled either by an individual company or an industry cartel. They have strict rules about how approved devices are designed that typically dictate in great detail what features compatible devices may or may not have. If you’ve got an idea for a digital media product that doesn’t meet their checklist, they’re likely to tell you to take a hike.

I expound on this and other points at much greater length in the full paper, which is available from Cato’s web site.

The 6 Myths Driving the Push for Video Game Regulation

by Adam Thierer on March 20, 2006 · 4 comments

I’ve just released a new paper entitled “Fact and Fiction in the Debate over Video Game Regulation.” At the state and local level, over 75 measures have been proposed that would regulate the electronic gaming sector in same fashion. More importantly, another new federal bill was introduced recently that would establish a federal enforcement regime for video games sales and require ongoing regulatory scrutiny of industry practices. S. 2126, the “Family Entertainment Protection Act” (FEPA), was introduced last December by Senators Hillary Clinton (D-NY), Joe Lieberman (D-CT), and Evan Bayh (D-IN) to limit the exposure of children to violent video games.

In my essay, I address several of the most common myths or misperceptions that are driving this push to regulate the electronic gaming sector. My general conclusions are as follows:

>> The industry’s ratings system is the most sophisticated, descriptive, and effective ratings system ever devised by any major media sector in America.

>> The vast majority of video games sold each year do not contain intense violence or sexual themes.

>> Just as every state law attempting to regulate video games so far has been struck down as unconstitutional, so too will the FEPA.

>> The FEPA could derail the industry’s voluntary ratings system and necessitate the adoption of a federally mandated regulatory regime / ratings system.

>> No correlation between video games and aggressive behavior has been proven. Moreover, almost every social / cultural indicator of importance has been improving in recent years and decades even as media exposure and video game use among youth has increased.

>> Video games might have some beneficial effects–especially of a cathartic nature–that critics often overlook. And, contrary to what some critics claim, violent themes and images have been part of literature and media for centuries.

I encourage you to read the entire paper for more details. It can be found online here: http://www.pff.org/issues-pubs/pops/pop13.7videogames.pdf

4 comments

Rare Good Sense from the French

by Tim Lee on March 20, 2006

Tyler Cowen links to a story about France’s new DRM law. Cowen is a very smart guy and he’s forgotten more economics than I’ll probably ever know, but I think he misses the boat on this one:

A legally forced unbundling could induce Apple to leave the market, if only to send other governments a message. More generally, song prices are relatively low early on to induce people to lock into the technology. If you forbid lock-in, early period song prices and indeed hardware prices will be higher than otherwise (think of market exit as the limiting case). But will forced unbundling make prices lower in the long run, due to the growing competitiveness of the market? My guess is no. Something better than iPod will come along within five or ten years, so the relevant form of future lower prices is “higher quality.” Allowing monopoly profits, rather than confiscating them, is the way to get there more quickly and more decisively. By enforcing interchangeability at such an early stage in the process, the French will more likely get a lame rather than a cool version of a universal access platform. How’s that for lock-in?

In the first place, if this is anything like the Boucher bill, which it sounds like it is, it’s not a “forced unbundling” of anything. Apple will still be free to bundle however they like, and will be under no obligation to assist their customers in converting songs to other formats. All it does is repeal a ill-conceived law that previously banned unbundling by the consumer. This simply puts it on par with most other industries. Gillette may sell me razors in hope that I’ll buy blades, but it’s not against the law if I decide to use the razor for something else.

I’m not sure I follow the rest of his argument, but it seems to me he has things precisely backwards. Let’s say something better than iPod comes along in 5 years that’s not compatible with iTunes. Under the status quo, iTunes customers will be faced with a Hobbson’s choice: either they throw all their current music out and buy it again from the new vendor, or they stick with the iPod. Many of them will stick with the iPod, because while the new platform may be better, it’s not enough better to justify throwing a music library that might be worth hundreds of dollars. This legislation lowers switching costs, thereby making it less likely that consumers will stick with an inferior device to avoid re-purchasing their music.

Now, obviously, if the French were mandating a particular form of interoperability–say, requiring all devices to support a format designed by the French government–that would obviously be a bad thing. But at least from the news reports I’ve read (I don’t read French so I could be wrong) that’s not what the law does. It simply says that consumers (and software companies) may convert legally purchased music to a different format so it can be enjoyed on new devices. So I don’t see why this would make the lock-in of inferior technology more likely.

Wireless, Security, and Liability

by Tim Lee on March 20, 2006

The Houston Chronicle’s TechBlog has a post this morning accusing me of taking security issues to lightly in my wireless piggybacking op-ed:

Reading Lee’s bio at the Technology Liberation Front, where he is a contributor, you can tell that he knows better. He’s a former systems administrator and savvy in the ways of Mac, Unix and Perl. I think his skimming over the security issue is disingenuous.

If he’s been paying attention, he knows that illegal music and movie sharing is rampant, and that the recording and film industries are coming after those who do it frequently. He also knows that these trade associations’ lawyers hunt down their prey via IP address, and that a “friendly neighbor” with a thirst for illegal music and movies can bring unwanted legal attention to the owner of an open WiFi network.

And that’s just the most minor of crimes that can be committed over a WiFi network. Granted, the chance that a kiddie porn addict or someone trying to hack the Pentagon will use your open bandwidth is slim–but do you even want to take that chance?

This is an interesting point, and is actually a different security issue than the one I had in mind when I pooh-poohed the security risks of open WiFi. I had in mind the worry that someone would log into your wireless network and hack into your computer or eavesdrop on your network traffic.

But what he’s talking about isn’t really a security issue at all, it’s a liability issue. And it is a real risk. If somebody does something bad with your Internet connection–shares copyrighted songs, trades child pornography, or sends a death threat to the president–there’s a chance you could get sued, or even arrested.

However, the odds of that happening is pretty small. And if it does happen, you’re not likely to be convicted. It is, after all, a case of mistaken identity–it’s not a crime to have someone use your network for lawbreaking without your consent. It’s likely that if you get a call from the RIAA or the FBI about illegal activity on your network, they’ll be willing to let you off the hook if you help them catch the culprit.

The other possible argument is that by leaving your network open, you’re making it easier for people to get away with doing illegal things. But there are millions of networks connected to the Internet. You’re never going to close all of them. So closing your network will simply caues criminals to move on to the next one.

Update: Mike at TechDirt chimes in to say that opening up your WiFi network qualifies you as an ISP under the Communications Decency Act, under which you’re not liable if someone does something illegal via your network.

Television Wants to be Free

by Tim Lee on March 19, 2006 · 2 comments

Apropos last week’s discussion of “parasitic” technologies, Ars has a great survey of the surge in product placements on TV. In a nutshell, as TiVos have made it easier to avoid commercials, networks have responded by blurring the line between advertisement and content, placing products (and plugs for products) within the show itself.

Frankly, I think this is probably better for everyone, at least for certain types of TV content. Given a choice between sitting through 18 30-second commercials in a half-hour sitcom, or seeing 10 product placements in the course of the show, I would much prefer the placements. At best, they can conceivably enhance the show by increasing its realism. At worst, they’ll be mildly irritating and distracting. Yes, at the margin it will probably reduce the artistic integrity of certain shows, but how many network TV shows have artistic integrity in the first place?

I think this trend has broader implications for the future of the television industry as well. The current television marketplace has a puzzling contradiction: on the one hand, networks fight tooth and nail to get people to watch their shows, for free, over the air. On the other hand, they charge a rather stiff fee for the privilege of watching the same content–often at lower quality–via the Internet. Obviously, part of the concern is that the Internet users will strip out the ads. Product placement solves that problem by making it difficult to strip ads without mangling the story itself.

Which leads to an interesting question: why don’t the networks simply make their shows freely available on the Internet to anyone who wants them? Put them on peer-to-peer networks to save on bandwidth! Upload them to YouTube and Google Video! After all, an eyeball is an eyeball. Sooner or later, Nielsen will figure out a way to measure how many eyeballs Internet distribution reaches. As long as there are plenty of products placed in each episode, advertisers will pay to have them distributed regardless of the medium.

2 comments

PainInTheAssMail

by Tim Lee on March 18, 2006

Esther Dyson has an op-ed in the New York Times defending GoodMail. I agree with her insofar as she’s arguing this is an experiment worth trying, and that consumers are free to choose a different email service if they don’t like it. I think the anti-corporate hordes attacking this as the end of the open Internet are rather dramatically overstating their case.

However, on the merits of GoodMail itself, I don’t find her argument very persuasive. In particular, I don’t buy this part:

In the short run, AOL and others will serve as the recipients’ proxies. If they don’t do a good job of ensuring that customers get the mail they want, even from nonpaying senders, they will lose their customers. And in the long run, recipients will be able to use services like Goodmail to set their own prices for receiving mail.

In my case, I’d have a list. I’d charge nothing for people I know, 50 cents for anyone new (though if I add the sender to my list after reading the mail, I’ll cancel the 50 cents) and $3 for random advertisers. Ex-boyfriends pay $10.

Although this concept sounds appealing in the abstract, I suspect she’d turn it off in a matter of days. After all, a very effective anti-spam solution, challenge/response filtering has been available for years. Such a system will be just as effective as Dyson’s hypothetical pay-for-email scheme at deterring spam, and it has the advantage of not irritating friends who are forced to sign up for some micropayment system. Yet hardly anyone uses it, because it’s too much of a hassle.

The fact is, we all get email from previously unknown addresses that we want to receive–receipts from online shopping, email lists, emails from long-lost friends, notifications from friends of changing addresses, etc. Any anti-spam system that requires the sender to do additional work (or pay extra) to send us email reduces the chance that such email will get through. And for at least certain classes of messages, that can be a serious problem. Which means that you’d have to look through your rejected emails periodically to ensure that none fell through the cracks.

The fundamental problem with these kinds of schemes is that they’re supposed to reduce the hassle of exchanging email. But while it may eliminate the hassle of dealing with spam, it introduces new and probably more significant hassles connected to the payment system. That’s not going to make anyone’s lives easier.

An Antitrust Puzzle

by Tim Lee on March 18, 2006

The article I discussed in my previous post also raises an interesting policy question:

While this may be good news for buyers of Vista, it is not for anyone who makes a living from selling anti-spyware software. The worldwide market has boomed recently, reaching $97 million in revenue in 2004, up 240.4 percent from a year earlier, according to IDC. However, companies such as Webroot Software and Sunbelt Software are in for tough times, analysts said.

“The aftermarket for Windows anti-spyware is going to dry up almost completely,” said Yankee Group analyst Andrew Jaquith. “Windows Defender is going to become the default anti-spyware engine, certainly for most consumers that have Vista machines.”

Should the Department of Justice prosecute Microsoft’s bundling of Windows Defender as an antitrust violation? I’m particularly curious to hear from those who supported the Department of Justice’s antitrust case in the 1990s. Because I assume that most of them would say “no,” but I’m having trouble seeing any relevant differences between the cases, aside from the fact that Netscape had better political connections than do Webroot and Sunbelt.

Afterthoughts on Spyware

by Tim Lee on March 18, 2006 · 2 comments

Cnet claims that Windows Vista “has the potential to demote spyware from a security priority to an afterthought.” Color me skeptical.

To be sure, Microsoft appears to be doing many of the right things. Users will no longer run as the administrative user by default, and Internet Explorer is getting an overhaul. When combined with a multitude of bug-fixes and a good firewall and anti-virus software, this will certainly cut down on the spyware problem.

But the article misses the point that spyware is fundamentally a problem of social engineering, not technology. Much of the time, spyware gets onto a user’s computer by deceiving the user about its origins or contents. All the technological improvements in the world won’t help the user who thinks she’s downloading, say, a new screen saver, without realizing that it has spyware attached. The user will now have to enter a password before the spyware will be installed, but if she was trying to install the software anyway, that’s not likely to protect her.

Moreover, the task of plugging all the holes in a previously insecure operating system is much harder than designing it to be secure in the first place. For example, a common vector of virii are ActiveX controls, a Windows-based browser plug-in that allows web pages to have interactive content. Because it’s tightly integrated with Windows, ActiveX is full of bugs that threaten the operating system’s security. Yet Microsoft cannot simply remove ActiveX because thousands of web pages use the technology. So they’re doing their best to patch up an inherently insecure technology.

So I think it’s great that Microsoft is taking security more seriously, and I hope they’re successful. But I don’t think spyware on Windows will be an afterthought any time soon.

2 comments

Memo to Tom Cruise: Just Ignore What Offends You

by Adam Thierer on March 17, 2006 · 8 comments

According to the NY Post, actor Tom Cruise has apparently persuaded Viacom-owned Comedy Central to cancel the rebroadcast of a controversial “South Park” episode about Scientology. He apparently threatened to refuse to promote the Paramount Pictures film “Mission Impossible 3” that is coming out this summer. (Paramount is also owned by Viacom.)

What a fool he is. Top Gun boy has just done more harm to his beloved Scientology religion than he can possibly imagine. By forcing Comedy Central to cancel the showing of that South Park episode poking fun at Scientology, everybody and his brother will now seek that episode out and view it somehow. I bet the episode will be the #1 most downloaded video on the Internet in less than a week. Don’t people ever learn to just ignore stuff that offends them and move on? By making a fuss about it they just draw our collective attention to it. Indeed, I’m going to go check my TiVo right now and see if I recorded this episode. It sounds funny. Thanks for bringing it to my attention Tom!

8 comments

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